Tax Regimes for IT Businesses in Georgia: How to Choose and Attain Optimal Status
Find out which tax regimes are most beneficial for IT businesses in Georgia.
April 10, 2024
Anna Davidson, Founder and Managing Partner, Lawyer
Giorgi Zhuzhunashvili, Partner, Barister
Alisa Arutyunyan, Accountant
Taxes for IT businesses in Georgia can be remarkably low. To attract more IT specialists to the country, special tax regimes are provided by legislation: Small Business Status, Virtual Zone, International Company.
Small Business Status for IT
Advantages of Tax Status
Income tax at a rate of 1%.
Legal Regulation of Status
Tax Code of Georgia (Articles 88-95), Government Decree of Georgia No. 415 dated 29.12.20.
Conditions for Obtaining and Actions of the Status
- Suitable for individuals providing services in the IT sector to foreign customers, as well as in the local market
- Types of IT services covered by the status:
- Code 62010: activity in the field of computer programming
- Code 62030: activities in computer hardware management
- Code 62090: other activities in the field of information technology and computer services
- The total income from this type of activity during the calendar year must not exceed 500,000 lari.
Income earned for providing consulting services in the IT sector is not covered under Small Business Status and is subject to income tax at a rate of 20% (Government Decree of Georgia No. 415 dated 29/12/2010).
Irrelevant Factors:
- Citizenship, residence permit, tax residency of an individual
- Term of individual entrepreneurship
- Place of service provision
- It is not obligatory to prove the work experience of employees in the company's field of activity
How to Obtain Status
- 1Register as an Individual Entrepreneur (IE) in Georgia
- 2Activate the tax account
- 3Electronically request the small business status through the tax account of the IE
The Small Business Status becomes effective from the month following its receipt.
Important Nuances
- Service Provision
- If the relationship between an IT specialist and a client is deemed to be employment-related by the tax authority, the authority may require the client (employer) to calculate the income tax for the employee at a rate of 20% and pay the shortfall to the budget. You can check whether you are considered an employee or a contractor by completing a questionnaire in your tax account on the rs.ge website. You can view a sample questionnaire in the test tax account via this link
- An IE IT specialist with Small Business Status may earn income from providing other services not covered by the small business status (excluding prohibited services).
- Submission of Tax Declaration
- An IE IT specialist with Small Business Status is obliged to electronically submit a tax declaration for income tax monthly by the 15th day of the following month through the tax account and pay the tax.
- If an IE IT specialist is not a tax resident of Georgia, they may have an obligation to pay income tax in their country of tax residency. Study the double taxation avoidance agreement between Georgia and the country of tax residency if such an agreement is concluded.
- Exceeding the Limit of 500,000 Lari
- Exceeding the limit of 500,000 Lari within a calendar year increases the income tax rate from extra income to 3%.
- Exceeding the established limit twice in a row leads to the loss of Small Business Status from the following calendar year.
- VAT:
- Services provided by an IT specialist to a Georgian client constitute turnover for VAT purposes. In the event that such income exceeds the limit of 100,000 Lari, an Individual Entrepreneur (IE) with Small Business Status will have an obligation to pay VAT on the amount exceeding the limit, in addition to paying income tax at the established rate.
- Residence Permit
- An IE IT specialist with Small Business Status, whose turnover exceeds 50,000 Lari within 12 calendar months, has the right to apply for a residence permit (VNZh) in Georgia. For more details, we wrote about it here
Virtual Zone
Advantages of Tax Status
Corporate tax (profit tax) - 0%.
Legal Regulation of Status
Tax Code of Georgia (Paragraph 1, Article 99).
Conditions for Obtaining and Actions of the Status
- Suitable for companies providing IT services to foreign clients.
- Types of IT services covered by this status:
Information technologies, including the study, support, development, design, production, and implementation of computer information systems, resulting in the creation of software products. - Place of service provision by the company - Georgia.
- It is necessary to demonstrate the work experience of the company's employees applying for the status, as well as to provide a valid contract with the client.
Irrelevant Factors:
- Total income from this type of activity during the calendar year.
- Citizenship, residence permit, tax residency of the founder, director, and employees.
- Work experience of the company or parent company in the field of activity of the company applying for the status.
How to Obtain Status
- 1Register the company in Georgia.
- 2Submit an application for Virtual Zone status to the Ministry of Finance of Georgia in the Financial-Analytical Service.
Important Nuances
- Service Provision
- The service (or software product) must be actually provided (software product - created) in Georgia and exported abroad - remote work of employees outside Georgia threatens the loss of status and tax benefits.
- In the event that there are no employees in the company's staff and the service is provided by the director, as a partner of the company, he/she can withdraw the company's income as dividends and thus use the tax incentive.
- Taxation
- Income from services used in Georgia obtained from foreign contractors (including foreign subscription services) without a permanent establishment in Georgia is subject to withholding tax at a rate of 10% (unless otherwise provided by a double taxation avoidance agreement).
- Income tax on employee salaries is 20%.
- Property tax is 1% of the average market value of the property.
- VAT
- The amount of income received from non-resident clients is not subject to VAT.
- The amount of income received from Georgian sources is subject to VAT at a rate of 18% (the company must become a VAT payer if the income from taxable VAT activities reaches 100,000 lari within 12 consecutive months).
- Expenses paid by a non-resident of Georgia (including foreign subscription services) without a permanent establishment in Georgia are subject to refundable VAT at a rate of 18%. However, there is an option not to pay the accrued VAT if these services are used to provide primary services abroad.
International Company
Advantages of Tax Status
- Dividend tax at the source of payment - 0%.
- Property tax (excluding land plots) used in entrepreneurial activity - 0%.
- Corporate tax (profit tax) - 5%.
- Income tax on employee salaries - 5%.
- The taxable income base (from which corporate tax is calculated) is subject to reduction by the amount of wages paid to Georgian citizens and the amount of expenses on scientific, research, project, and experimental work in the field of activity permitted for an individual with the status of an International Company.
Legal Regulation
Article 23 of the Tax Code of Georgia, Government Decree of Georgia N619 dated 08.10.2020.
Conditions for Obtaining and Actions of the Status
- Suitable for companies providing IT services to foreign clients.
- Types of services covered by the status, as defined by the "National Classifier of Economic Activities of Georgia"
Open
Code 58: Software Publishing
— Code 58.2: Publishing of software
— Code 58.21: Publishing of computer games
— Code 58.29: Publishing of other software
This class includes:
Code 62: Computer programming, consultancy, and related activities
— Code 62.01: Computer programming
This class includes:
— Code 62.02: Consultancy activities in the field of computer technology
This class includes:
— Code 62.03: Computer hardware management
This class includes providing management and operation of client computer systems on-site and/or data processing of objects, as well as related auxiliary services.
— Code 62.09: Other information technology and computer services
This class includes other activities related to information technology and computers not classified in other headings, such as:
— Development and/or provision of websites
— Web hosting, remote maintenance of software and hardware
— Provision of software and related updates
— Provision of images, texts, and information to access the database
— Remote system administration
— Online delivery of dedicated memory space
— Access or download of software (including procurement/accounting software or antivirus software) and its updates
— Banner ad blocking programs
— Downloadable drivers, such as programs linking computers to remote devices (e.g., printers)
— Automatic online installation of website filters
— Automatic online installation of firewalls
— Code 58.2: Publishing of software
— Code 58.21: Publishing of computer games
— Code 58.29: Publishing of other software
This class includes:
- Publishing of ready-made (non-customized) software, including translation or adaptation of non-customized software
- Software for specific markets at own expense: operating systems, business, and other applications
- Reproduction of software, see 18.20
- Retail sale of non-individualized software, see 47.41
- Production of software not related to publishing, including translation or adaptation of non-customized software
- Software for specific markets for remuneration or on a contractual basis, see 62.01
- Provision of software online: hosting of applications and provision of application services, see 63.11.
Code 62: Computer programming, consultancy, and related activities
— Code 62.01: Computer programming
This class includes:
- Designing the structure and content and/or writing computer code necessary for the creation and implementation of system software (including updates and fixes): software applications, databases, web pages
- Software configuration, i.e. modification and customization of existing applications to function within the client's information system environment
- Publishing of packaged software, see 58.29.
- Translation or adaptation of non-individualized software for specific markets at own expense, see 58.29
- Planning and designing computer systems that combine computer hardware, software, and communication tools, even if providing software may be an integral part, see 62.02.
— Code 62.02: Consultancy activities in the field of computer technology
This class includes:
- Planning and designing computer systems that integrate computer hardware, software, and communication technologies
- Services may include training relevant users
- Sale of computer hardware or software, see 46.51, 47.41
- Installation of mainframes and similar computers, see 33.20
- Installation (setting up) of personal computers, see 62.09
- Installation of software, computer emergency recovery, see 62.09
— Code 62.03: Computer hardware management
This class includes providing management and operation of client computer systems on-site and/or data processing of objects, as well as related auxiliary services.
— Code 62.09: Other information technology and computer services
This class includes other activities related to information technology and computers not classified in other headings, such as:
- Computer emergency recovery services
- Installation (configuration) of personal computers
- Software installation services
- Installation of mainframes and similar computers, see 33.20
- Computer programming, see 62.01
- Computer consultancy, see 62.02
- Computer hardware management, see 62.03
- Data processing and hosting, see 63.11
— Development and/or provision of websites
— Web hosting, remote maintenance of software and hardware
— Provision of software and related updates
— Provision of images, texts, and information to access the database
— Remote system administration
— Online delivery of dedicated memory space
— Access or download of software (including procurement/accounting software or antivirus software) and its updates
— Banner ad blocking programs
— Downloadable drivers, such as programs linking computers to remote devices (e.g., printers)
— Automatic online installation of website filters
— Automatic online installation of firewalls
- The company or its parent company must have at least 2 years of experience in the field of the company's activity requesting the status. Proof of experience is required.
- The place of service provision by the company must be in Georgia.
Do Not Matter:
- Aggregate income from this type of activity during the calendar year
- Citizenship, residence permits, tax residency of founders, directors, and employees
How to Obtain the Status
- 1Register the company in Georgia
- 2Apply for International Company status at the Revenue Service
Important Nuances
- Provision of Services
- Engaging in other activities is permissible provided that the income from such activities does not exceed 2% of the income from the permitted activity.
- VAT
- Income from services obtained from foreign contractors (including foreign subscription services) without a permanent establishment in Georgia is subject to refundable VAT at a rate of 18%. However, there is an option not to pay the accrued VAT if these services are used to provide primary services abroad.
- Income from services used in Georgia obtained from foreign contractors (including foreign subscription services) without a permanent establishment in Georgia is subject to withholding tax at a rate of 10% (unless otherwise provided by a double taxation avoidance agreement).
Feel free to contact us - fill out the form on our website or message us - and we will help you choose and obtain the optimal tax regime for your business, as well as provide comprehensive support for your economic activities.
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MARIA GUSEINOVA
Leading Manager of Commercial Department
Leading Manager of Commercial Department